If you provide advice or services to clients, you may need an errors and omissions policy. Some professions, such as accountants and engineers, are required to have this insurance as part of their license to practice. In addition, many small businesses should be protected in the event that a project goes awry and the client sues.
What is errors and omissions insurance?
Many insurance companies across Canada offer E&O insurance. Businesses and professionals pay a monthly premium and in return can feel confident that they are protected if they are sued for making a mistake or failing to do an important task.
Who needs errors and omissions insurance?
A wide variety of professionals and businesses require this type of insurance. It covers you for a mistake, bad advice or a missed deadline that resulted in a financial loss for the client. It can also protect you if you fail to deliver goods and services as agreed in a contract.
As we have indicated, some professions are required to have errors and omissions insurance. For example, the Real Estate Council of Ontario says that real estate agents and brokers must purchase coverage. Errors and omissions insurance in real estate provides protection in the event that agents make a mistake, such as on the taxes on a property for sale. In addition, it helps in the event that a brokerage goes bankrupt and consumers lose their deposit.
There is even errors and omissions for insurance agents. If they issue a policy and forget to include key coverage, their client could sue.
Many businesses, both large and small, need errors and omissions insurance. This could include home inspectors, IT experts and safety consultants. In fact, just about any business that offers advice or consulting services should have professional liability insurance. If you think you may need protection, contact your insurance broker, who will advise what you require and how much it will cost.
Why is errors and omissions insurance important?
It is vital for two reasons. First, if you make a mistake and a client sues, you could be on the hook for any financial damages.
Secondly, legal costs can add up quickly. In a lawsuit, you will need to hire a lawyer to defend you. They charge hundreds of dollars per hour. If your case is complicated, the legal fees could end up costing thousands of dollars.
Having E&O insurance gives you peace of mind so that you don’t have to worry about whether your work is perfect every time.
What does errors and omissions insurance cover?
Generally speaking, it covers you for errors in providing advice, consulting or services to a client. It normally covers both actual damages and legal costs.
Let’s look at an example. Zip IT hosts computer servers which house data for more than 100 different clients. Cybercriminals hack into the servers and steal valuable and confidential information about your client’s customers. Several clients sue for damages, claiming that IT security for the servers was inadequate. They win the lawsuit.
Fortunately, Zip IT has E&O insurance that specifies it will cover these types of incidents. The insurance company pays for the settlement and legal costs.
What does it not cover?
It’s important to understand that this insurance is different from Commercial General Liability insurance. Commercial insurance protects you from a client suffering bodily injury or property damage at your site. So you may need both commercial insurance and errors and omissions coverage.
In addition, the coverage is for honest mistakes and forgetting to do something important. It does not cover illegal acts and purposeful wrongdoing. Therefore, it does not cover you if you are a real estate agent and steal a client’s house deposit.
How much does errors and omissions insurance cost?
There are a number of factors that will have an impact on cost:
- The size of your business: A small business that needs only $100,000 in coverage may pay $30 per month in premiums. A larger company with $5 million in protection may face a monthly bill of $1,000 or more
- The amount of insurance you need: Firms working on multimillion dollar contracts will need more insurance since even a small error could threaten the entire project.
- The level of risk in your occupation or industry: A writer preparing grant applications for small non-profit organizations only needs basic protection; an engineer consulting on major building projects such as new bridges is at greater risk since a mistake could cost many lives and millions of dollars.
- The value of your projects: If you work on a number of big projects, your risk is going to be greater.
- The number of employees: If you have several consultants, the risk will be higher and so will your premiums.
Does your small business need errors and omissions insurance?
It depends what kind of small business you have. If you are a retailer selling t-shirts or kitchen gadgets, you probably don’t need E&O insurance. A commercial general liability policy will cover you if someone slips in your store’s aisle or there is property damage.
However, you do need errors and omissions if you provide advice and consulting services. This could include a wide range of occupations, such as actuaries, home inspectors, IT consultants, travel agents and lawyers.
Medical practitioners carry malpractice insurance, which is a form of errors and omissions. This can cover many healthcare workers, including doctors, CPR instructors, massage therapists, veterinarians and occupational therapists.
Errors and omissions insurance example
You are an immigration consultant working with Sandeep, who is from India and studies at University of Toronto. Sandeep is a graduating in engineering and wants to remain in Canada and get his permanent residency status. However, you forget to file his application. He sues you for negligence. His suit is successful and you must pay for damages and legal costs. Your insurance pays the total bill of $90,000.
Do you need errors and omissions insurance?
Yes, if you provide advice or consulting services and there is a risk of damages if something goes wrong. Contact your commercial insurance broker and they will get quotes from several insurance companies for professional liability insurance. The monthly premium is a small price to pay for peace of mind.
